Freeport defers copper from Grasberg Mine

NEW YORK  Freeport-McMoRan Copper & Gold Inc. has deferred around 40 million pounds of copper and 80,000 ounces of gold per month from its Indonesian subsidiary as it waits to obtain approval for 2014 exports, the company said Jan. 22.

PT Freeport Indonesia Tbk (PT-FI), which ships around 40 percent of its output to PT Smelting, has been seeking to obtain administrative permits for exports, the company said, noting that the permits have been delayed as a result of new mineral regulations that took effect this month.

The balance of PT-FIs concentrates are expected to be sold under long-term contracts with other international smelters.

Freeport chief executive officer Richard Adkerson said during a conference call with reporters and analysts on its fourth-quarter financial results that if the company were unable to find a resolution to its discussion over its contract of work, it would be forced to scale back, or even suspend, pit operations at its giant Grasberg Mine in Indonesia, although he reiterated that this would be a last resort.

PT-FI has a limited ability to store copper concentrates produced at Grasberg due to the nature of the product and the location of the mine, Adkerson said.

Alternative storage and shipment opportunities are being explored, along with the adjustment of the mine plan to reduce concentrate output, he added.

Were positive about getting this situation resolved, and thats what were working to doand we believe it is in everyones interest to do so, Adkerson said, adding that it would not be inappropriate to speculate on what would happen to PT-FI if no agreement was reached. The company has been engaged in talks every day with Indonesian authorities.

The delay in receiving permits is the result of new regulations on the export of minerals from Indonesia that were published in January and which conflict with PT-FIs contract of work, Freeport said.

Under the terms of the new regulations, holders of contracts of work with existing processing facilities in Indonesia can continue to export product through Jan. 12, 2017.

However, there are new requirements for the continued export of copper concentrates, including the imposition of a progressive export duty on copper concentrates starting at 25 percent in 2014 and rising to 60 percent by mid-2016.

But according to Phoenix-based Freeport, the contract of work at its operations in Indonesia authorizes it to export concentrates and sets forth the taxes and other fiscal terms applicable to its operations. It also states that PT-FI cant be subject to taxes, duties or fees subsequently imposed or approved by the Indonesian government.

PT-FI is working with the Indonesian government to clarify the situation and to defend its rights under the contract of work, Freeport said in a statement.

We have expressed a willingness to talk about some revisions in line with the governments aspirations while still protecting the rights of our shareholders, according to Adkerson. We have a strong desire not to go into international arbitration (if no agreement is reached) but we have the feature available to us. The more attractive course of action is to find a mutually agreeable course of action with the government.

The PT-FI contract of work expires in 2021 and allows for two 10-year extensions through 2041, subject to approval by the Indonesian government.

PT-FIs 2014 copper and gold sales estimates assume no changes to planned 2014 concentrate shipments. Sales from Indonesia mining are expected to reach 1.1 billion pounds of copper and 1.6 million ounces of gold in 2014 vs. 885 million pounds of copper and 1.1 million ounces of gold in 2013.